Point correction (NASDAQ: SFIX) limped in his fourth quarter earnings report on Tuesday. The stock has fallen nearly 50% since the release of its last earnings report, although there has been no major news on the stock since then.
However, the fourth quarter earnings report gave the bears a check on reality and indicated that underlying activity is still strong. The stock jumped double-digit after-hours as the online styling service saw revenue growth 29% to $ 571.2 million, easily beating both the analyst consensus at 547, $ 9 million and the company’s own forecast at $ 540-550 million.
Best of all, the company also recorded strong results lower in the income statement. It posted a record quarterly gross margin of 46.4%, which it attributed to better-than-expected revenues, better product margins and lower transportation costs. Adjusted EBITDA was $ 55.4 million, a margin of 9.7% and up from $ 11.8 million in the quarter last year. In the end, the company posted generally accepted accounting principles (GAAP) earnings of $ 0.19 per share, which crushed estimates calling for a loss of $ 0.13.
Given these numbers, it’s easy to see why the stock jumped 16% in after-hours trading. But there are several reasons why the stock could continue to climb from here.
1. Freestyle could be a game-changer
Stitch Fix officially announced Freestyle during the results report, a new shopping experience that allows any customer, even those who have never ordered a Fix before, to purchase an assortment of products based on their profile. style, fit and budget in categories such as casual, work, second-hand and sportswear.
The company has been working towards this goal for over a year, testing what was once known as “direct buy” on existing customers. Freestyle offers a number of benefits for both the business and the customers. It saves customers time shopping by offering them a personalized selection that other apparel retailers can’t match, and it exponentially expands the company’s addressable market from anyone who would order a Fix – the box of five garments which was the company’s main offering. – to virtually anyone who buys clothes, or at least buys online. This should also increase engagement, as the selected selections will change throughout the day as inventory is updated.
Stitch Fix has put together an impressive lineup of Freestyle brands including Madewell, Levi’s, Rag & Bone, Adidas, North Face, Vans and DKNY, among others. If Freestyle proves popular, it could trigger sales growth.
2. Orientation seems strangely weak
While Stitch Fix’s fourth quarter numbers were stellar, its forecast wasn’t that hot. For the current quarter, the company has called for year-over-year revenue growth of 14% to 17% to $ 560 to $ 575 million. Halfway through that would mark a sequential drop in revenue from the fourth quarter. In its history as a publicly traded company, revenue has declined only once in a sequential fashion, and that was during last year’s foreclosure quarter. In addition, his forecast for the full year called for revenue growth of at least 15%, a significant deceleration from 23% in fiscal 2021.
This forecast is surprising given the tailwinds from the launch of Freestyle and the ongoing economic reopening, which has been delayed by the Delta variant.
Historically, Stitch Fix advice has not been overly conservative. But the company just had a new CEO, Elizabeth Spaulding, who took office in early August, and she could offer some cautious advice to avoid over-promising and under-delivering. We won’t know until the company’s next earnings report if this is true, but based on its track record, the macro environment and the launch of Freestyle, it should be able to beat those predictions.
3. It could be primed for another short press
Stitch Fix briefly exceeded $ 110 in January during a short squeeze at the same time as GameStop‘s escape. Today, 20% of the stock’s float is sold short, or 12 million shares, providing plenty of fuel for another pop as the bears buy back shares to close their bets. Based on an average daily trading volume of 1.5 million shares, it would take eight days to cover shorts, another good sign for a short squeeze.
A short squeeze on its own is not a bullish thesis, and it alone is not a reason to own the stock, but dozens of battered consumer stocks have soared this year on short cuts. , designed by marketers on Reddit and other social media forums. Stitch Fix has been very volatile throughout its history, with the share price ranging from $ 25 to $ 113. It’s action on the battlefield, and after months on the losing side, the strong fourth quarter sets the stage for the action to skyrocket.
It will take months to see how Freestyle fares and how the business is performing against its forecast, but the upside potential for the disruptive clothing business is considerable at this point, especially after the stock is over. has fallen by almost half in the past three months for no real reason.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link